LIC IPO: Actuary pegs insurer's embedded value at Rs 4-5 trillion

LIC IPO: Market valuation of listed life insurance peers is 3-4x their EV, but govt pushing for Rs 15 trn

The Government-appointed actuary has pegged the embedded value (EV) of the Life Insurance Corporation (LIC) of India at Rs 4-5 trillion, a key parameter that will be used to compute the market valuation of India’s largest insurer, said an official.

The computation of the EV is key for the launch of LIC’s IPO slated to be held in March, and such an exercise has been undertaken for the first time since the life insurer’s inception.

The EV is the sum of adjusted net worth and value of in-force business or estimated future profits.

The EV has been shared with the Department of Investment and Public Asset Management (DIPAM) as it prepares for the IPO. The adjusted net worth will be high as the policyholder fund would be bifurcated into participating and non-participating funds, an official said.

“The insurer also should get advantage of equity gains it has made and, therefore, the valuation is expected to be high. The non-participating fund will be bifurcated as on September 30, 2021, which will include these gains, leading to a higher EV for the insurer in September,” he added.

Participating fund has receipts from participating policies – in which the insurer’s profits and surplus is shared with policyholders – and from which all payments to policyholders are made. A non-participating fund has all receipts from non-participating policies – in which non-bonuses or surplus is shared with policyholders. The market valuation of LIC’s listed insurance peers is three-four times their EV. However, the valuation of LIC will be decided in consultation with government-appointed merchant bankers, the people quoted above said. The government is pushing for a Rs 15 trillion valuation, Bloomberg News reported.

LIC will file the draft red herring prospectus (DRHP) this month, which would include the insurer’s EV. The government is looking to launch the IPO, which is slated to be the largest the country has ever seen, in March. The proceeds from the IPO would help the government in meeting a chunk of its Rs 1.75 trillion divestment target for current fiscal.

The ministerial panel that includes Union Finance Minister Nirmala Sitharaman will give its final nod on the size of the IPO once it’s finalised by the DIPAM in consultation with intermediaries.